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The Farmer Mindset: Navigating the Inverse Market

Lock in a profit now or leave flexibility for the next rally? Learn how you can do both.

This season’s inverse market, where nearby prices are better than prices later on, has some farmers stewing because they may have sold grain ahead of the rally last fall. But waiting on even higher prices to become “whole again” may just dig a deeper hole. Those who are consistently growing their operations and strengthening their foundations have one thing in common—a calculated and steady approach to grain marketing.

Over the last few months, ADM representatives have been noticing diversified approaches and opinions among producers about when is the right time to sell grain. One producer recently sold new crop to lock in an early profit, so even if the market goes higher, he will still have more to sell later. Others are selling right now because they’re worried about being “under sold” going into harvest. Yet some producers are convinced prices will reach $7 corn, so they’re holding out for the next rally.

“We are certainly seeing a full range of mindsets from our customers who are looking to market these historically high-price levels. Where there is excitement for some producers, others feel hindered making meaningful business decisions,” said Rebecca Wahlig, a grain origination specialist for ADM. “In my role, I help producers set up a contract that’s customized to their needs. Recently, I worked with a producer who prefers to see the daily averaging aspect within his range, so he is using a Price Daily contract with a floor and ceiling rather than a Minimum Price contract. This decision has helped eliminate his downside risk and instead created upside potential.”

Another factor that may be impacting farmers’ current outlook on selling grain is the high fertilizer prices as of late. Annual fertilizer costs are a significant input in the full financial picture of a farm operation, so the payoff in some farmers’ minds may be to simply wait and hope for grain prices to keep rising. That way they can afford NPK this year. However, there are other strategic ways to control this input.

ADM fertilizer tools can help farmers calculate input costs and view historical pricing information, so fertilizer supplies can be bought in bulk, ahead of time, when Urea or other blends are cheapest. It’s a matter of taking control of a significant input cost and not letting it dictate other aspects of your business.

During the last 5-7 years, the partnership between Crop Risk Services and ADM has focused on assisting farmers with their risk management plan. Making decisions ahead of time frequently saves farmers from selling grain below their breakeven cost. Crop insurance is a critical part of a comprehensive plan and when paired with other available tools, long-term sustainable profitability is achievable.

For instance, ADM has several different automatic contracts to help farmers capture market upside potential like Rebecca mentioned. Depending on the contract, farmers can customize these based on their price targets, delivery period, and other important pieces. This can help them capture the market rally while at the same time sell portions of their production. This approach covers costs and manages cash flow needs, giving farmers peace of mind knowing that some grain is sold prior to harvest.

One contract that allows farmers to sell grain with confidence, knowing they can price out of the contract early based on the market direction, is ADM’s Price Daily™ contract. You can also add a floor for downside protection. Since the approach is to sell a certain number of bushels at a time, there’s still room to participate in an unforeseen market rally. Knowing all too well that grain prices can fluctuate significantly on a day-to-day basis, the Price Daily helps manage market volatility. Farmers are encouraged to utilize tools and contracts that enable them to lock in profit throughout the year, but also gives them cushion to take advantage of new opportunities when they arise.

Optimize your profitability rather than waiting for prices to drop. Talk with your ADM representative to develop a strategy that will both help you capture upside now and leave you room to participate in any market rallies that emerge.

ADM is providing this communication for informational purposes, and it is not a solicitation or offer to purchase or sell commodities. The recommendations in this communication do not take into account any particular individual’s or company’s objectives or needs, which should be considered before engaging in any commodity transactions based on these recommendations. The sources for the information and recommendations in this communication are believed to be reliable, but ADM does not warrant or guarantee the accuracy of the information or recommendations. ADM or its affiliates may hold or take positions for their own accounts that are different from the positions recommended in this communication. The information and recommendations in this communication are subject to change without notice.